20% TCS on LRS for Overseas Investments: How to Claim It Back in Your ITR

20% TCS on LRS for Overseas Investments: How to Claim It Back in Your ITR

Every Indian resident who remits money abroad to invest in US stocks, overseas mutual funds, or international bonds is having 20% deducted at the bank counter. Most of them believe they have "paid tax." They have not — they have paid TCS. The 20% is a tax collected at source and sits as a credit in their name with the government. It can be — and should be — offset against their total tax liability in the ITR.

A meaningful number of individuals are not claiming this credit. They are effectively giving the government an interest-free loan through their TCS that they recover, if at all, months later as a refund.

Current TCS Rates Under Section 206C(1G)

Section 206C(1G) of the Income Tax Act, 1961 governs TCS on LRS remittances. Rates following Budget 2026 amendments:

The 20% rate applies to "other remittances" including overseas equity, mutual funds, bonds, property. The ₹10 lakh threshold applies per financial year, per individual, across all LRS remittances.

How TCS Is Not Tax — It Is a Credit

TCS is not the final tax on your LRS remittance. Your actual tax liability is determined when you compute your total income and apply applicable tax rates. The TCS credit reduces your tax payable when you file ITR, or generates a refund if TCS exceeds your total tax liability.

Example: Total income ₹50L, tax payable ₹12L, TCS deducted ₹5L, TDS on salary ₹8L → Refund of ₹1L. Without claiming the TCS credit, the taxpayer would have filed showing ₹4L payable — leaving ₹5L of TCS unrecovered.

Claiming the TCS Credit in ITR

Step 1: Download Form 26AS from incometax.gov.in. TCS details appear under "TCS details" and in the Annual Information Statement (AIS). Verify bank-wise amounts match your records.

Step 2: File ITR-2 (mandatory if you have overseas investments, foreign assets, or capital gains from foreign securities — ITR-1 cannot be used). Within ITR-2: Part B → Schedule TAX → TCS. Enter Collector PAN (bank's TAN), amount, assessment year.

Step 3: Report the overseas investment income: dividends from foreign stocks (Schedule OS), capital gains on sale of foreign stocks (Schedule CG with foreign asset details), interest from foreign bonds (Schedule OS). The TCS credit offsets the total tax computed on all income.

Step 4: Schedule FA is also mandatory for overseas investment holdings — TCS on LRS does not excuse the Schedule FA disclosure.

Common Mistakes

• Not checking Form 26AS before filing — TCS entries must match exactly.
• Treating TCS as final tax and not filing ITR — mandatory if income exceeds the basic exemption limit.
• Claiming TCS credit while omitting dividend income — creates inconsistency that triggers scrutiny.
• Forgetting Schedule FA for overseas investments.

I'm CA Harun Raaj, Visakhapatnam. If you are remitting under LRS for investment purposes and have not been tracking TCS credits in your ITR, this is worth correcting in AY 2026-27 — refunds can be substantial for active investors.

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